Can you be taken to court over an unpaid debt?


Date: 9 May 2022

Calculating how much money is owed

In the case that loan repayments are not met, a creditor could take a borrower to court. If you cannot repay your loan and are worried about court action, there are certain steps that you can take in order to prevent things going that far.

When would an unpaid loan go to court?

There are usually multiple steps before an unpaid loan escalates to court action. Long before this step is reached, a borrower will usually speak to the lender to find out why they are unable to make the loan repayment. In many cases, an agreement can be reached at this stage with the borrower and lender coming up with a new repayment arrangement.

If they are unable to come to an agreement at this stage, it might be worth bringing in a mediator as a next step. A mediator is someone who is trained in dispute resolution and acts as an impartial third party. A fee is usually charged for mediation, but it tends to be cheaper than contracting a solicitor and going to court.

Court action will only happen in the case that the mediation is unsuccessful. Lenders are entitled to make a statutory demand in order to request money that they are owed either from an individual or a business. If the statutory demand is ignored, a lender can also make a court claim for their money and the court can order the money to be paid. This includes being able to make someone bankrupt or forcing a company into administration or liquidation, depending on the amount owed.

What should you do if you are being taken to court for an unpaid loan?

If you are being taken to court for an unpaid loan, you should reply to the claim as soon as you can, ideally within a fortnight. Speak to your creditor as soon as possible and if you disagree with the debt owed, you can dispute it at this stage. It is always recommended to speak to your creditor first and explore your options for getting out of debt; it is possible that you can agree on a new repayment plan before going to court and avoid a lot of time, stress, and money.

If you are taken to court, there will be a court order which says whether or not you need to pay the debt. In the case that you do have to pay the debt, the court order will outline how much you will need to pay and when.

In which cases do you have to repay your debt?

If your debt is something that the law says you have to repay, for example water charges or council tax, you will be responsible for paying the debt. Additionally, if you have signed a contract or agreement which stipulates that you will be giving money to someone, you will need to repay the debt as you have a legal duty to pay it

In some cases, you may not need to repay a debt. This will be the situation if you have not had contact with the creditor in more than six years, if the creditor did not check that you could afford the repayments before signing the agreement or if there was a problem when signing the agreement such as misleading information or external pressure.

Additionally, you might be exempt from paying debt if you are under 18 or if you were an authorised additional cardholder on someone else's credit card account.

Can you go to jail for unpaid loan debt?

You cannot go to prison for unpaid loan debt unless you have knowingly committed fraud. However, if you owe council tax debts, you could go to prison if the court decides that there is no valid reason why you are unable to pay.

What happens if your business can't repay a loan?

If you are a company that cannot repay your loan, it is likely that your creditor will try to claim any money owed. They can register their claim and will be legally entitled to a share of any money available. However, if the company is being liquidated and there is no money available to pay debts, the creditor will not receive any of the owed money.

Copyright 2022. Article made possible by Tudor Lodge Digital.

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